Depreciation is a process of ______________.

a. valuing an asset at its fair market value

b. allocating the cost of an asset to expense over its useful life in a rational and systematic manner

c. writing down an asset to its real value each accounting period

d. increasing the value of an asset over its useful life in a rational and systematic manner

e. applying the historical cost principle to assets

- The "prepaid rent" account has a $30,000 balance. Which of the following is NOT true?

a. The account appears on the company's income statement

b. The money was paid in the past but will provide benefit in the future

c. The account is an asset

d. The cost is expected to help generate future revenue

- If the accountant for Gibby Company fails to record depreciation on long-term assets for the current period, __________.

a. net income will be understated and total assets will be correctly stated

b. net income will be understated and total assets will be understated

c. net income will be understated and total assets will be overstated

d. net income will be overstated and total assets will be understated

e. net income will be overstated and total assets will be overstated

- When Gibby Company's variable costs increase, ________.

a. its margin of safety will remain the same

b. its margin of safety will increase

c. its margin of safety will decrease